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Friday, May 20, 2016

Nairobi's Buildings Are Collapsing Under The Weight Of Dirty Cash

When a building in
Nairobi’s Huruma estate came tumbling down three weeks ago, killing more than
50 people, national and county government officials wasted no time identifying
who the culprits were. On the morning following the collapse, President Uhuru
Kenyatta, taking a break from preparations to set fire to the country’s ivory
stockpile to tour the site of the Huruma tragedy, reportedly ordered the arrest
of the owner of the building.

County officials were
also quick to declare that the building had not been approved and was marked
for demolition. The National Construction Authority also chimed in, declaring
that another 57 buildings in the area had been found unfit for habitations.
Demolitions of some of these resumed this week, after Nairobi Governor, Evans
Kidero, suspended them for a week “to allow tenants to find alternative
housing”.

In all this, the problem
identified by officialdom was clear: greedy rogue developers cashing in on the
city’s acute housing shortage. They have been assailed for cutting safety
corners to maximize profits, corrupting government officials and endangering
thousands of innocent lives.

“Shortage of houses, poverty, greedy developers who do not obey
the construction standards—construction without proper steel structures to
support the building – and valuing money more than the lives are the major
issues here,” says Nairobi county Planning and Housing Executive Christopher
Khaemba.

Daniel Manduku, the CEO of the National Construction Authority,
the body charged with regulation and coordination of the construction sector,
says the country’s laws have not been sufficiently strengthened to deal with
the developers. “The law has been weak. Developers are not forced or
mandated to use professionals. That is why we’ve had very poor structures
coming up over the years,” he says.

The scale of the problem does point to a
collapse in building standards across the capital, perhaps even across the
country. In January last year, the NCA warned that over 70% of residential buildings
in Nairobi were unsafe.

However, in a piece penned in November 2014, Kwame Owino, CEO of the Institute for Economic
Affairs, says that what is commonly seen as a housing problem what actually an
income and employment problem. He says
that in a country in which poverty is pervasive, “a cheap house will
necessarily be a bad house.” He says the high costs of land and construction
are squeezing the poor into ever more decrepit and unsafe housing.

“The largest cost
component in construction is the cost of land and to use it efficiently
developers build multiple storeys. The next largest cost is materials for
pillars, including steel and mortar and this is where many developers cut
corners, using substandard materials or even omitting the pillars entirely,” he
adds.

Land prices in the
city have grown exponentially over the last two decades and today rival, and
sometimes even surpass prices for similar property in cities such as New York.
A report released by property firm Hass Consult last year showed that real
estate prices in the city had grown five-fold in the last seven years.

While many have
attributed this growth to the rising demand for housing, the fact is that many
of the current real estate projects do not target the poor, who compose the
largest share of the under-housed in Nairobi. “Most of the private housing
projects one sees are intended to house the middle and upper classes,” says Mr
Owino.

In fact, even the
middle classes are struggling to cope with the massive surge in prices.
According to Mr Khaemba, they are being displaced and increasingly forced into
housing that was created for low-income residents, which further reduces the
housing available for the poor. “Estates like Umoja were previously
meant for low income earners but the entire area has been taken over by middle
income class,” he says. The fact that despite high prices, the country has less
than 20,000 mortgages also raises doubts as to whether the demand for housing
really explains the stratospheric prices.

A 2013 report by for
Thomson Reuters Foundation by Global Financial Integrity (GFI), a Washington-based
financial watchdog, gives a clue to what is really behind the stupendous ascent
of Nairobi’s real estate. It shows that the amount of illicit money entering
Kenya from faulty trade invoicing, crime, corruption and shady business
activities has increased more than five-fold in a decade to equal roughly 8
percent of Kenya’s economy. According to the report, much of this money is
laundered through the real estate and property market.

In effect, massive
amounts of dirty money are being pumped into real estate, driving up prices and
pushing the most vulnerable into crumbling housing. With the soaring land
prices, as Mr Owino noted, a cheap house really is a bad house. And the fact is the vast majority of poor
construction is in predominantly poor neighborhoods of the city, where people
have low ceiling for rent. A study by design and engineering firm Questworks found that while the quality of construction work is poor across Nairobi, but was more alarming in less affluent parts such as Buru Buru and Eastleigh.

Even if implemented, the failed Jubilee manifesto promise to build 150,000 housing units and the county government’s promises to construct
14,000 units starting in June are unlikely to produce any lasting changes. They are likely to run into the very same problems that the Kenya Slum
Upgrading Project (KENSUP), launched in 2003, has.

Its
flagship project, dubbed “The Promised Land” by local residents, is a rise of multi-storied
concrete apartment buildings behind Kibera. The apartments are heavily
subsidized and have, for the most part, running water, sanitation and
electricity. However, Kibera residents assigned houses or rooms (sometimes up
to three families are allocated a single unit) have been trooping back to the
slum, preferring the income that comes with sub-letting the units to a
middle-class searching for affordable housing in a city with skyrocketing
rents.

KENSUP Director, Mr
Charles Sikuku, struggles to appreciate the irony of his goal as he told the
Nation last year, to “move the slum residents from living below the poverty
line to a Nairobi upper middle-class life,” without actually increasing
incomes. Even worse, he appears blind to the fact that the real estate bubble is
actually driving traffic in the opposite direction. His assertion that the poor
are “ungrateful” for subsidized housing demonstrates a lack of understanding that
he is housing real people, not just filling up buildings, and that these people
will responding to the dynamics and incentives generated by a hyper-inflated real
estate market.

In the end, housing is about people not buildings, a fact that appears lost to those charged with resolving the problem but who seem preoccupied with being seen to act rather than actually addressing root causes. Simply jailing developers and their corrupt accomplices, demolishing existing shoddily constructed buildings and enforcing building codes will not address the real problem - a critical shortage of decent, affordable rental housing for the poor driven by the ballooning land prices.

In fact, in the short term at least, some of them will worsen the situation. Enforcing building standards will come at a cost that already struggling tenants will be asked to shoulder, which will incentivize even more bending of the rules. Similarly, demolishing existing housing, as the county government is doing, will have the effect of driving up prices.

This has already been seen in Huruma where rental prices in the wake of the announced demolitions have reportedly gone up by nearly 50%. In such circumstances, the governments’ offer to pay rent for two months for the families displaced by the Huruma collapse (but not those the eviction orders will displace, or those whose rents will subsequently rise) amounts to little more than a band-aid on a mortal wound. Comprehensive solutions to this problem must therefore mitigate the immediate effects on the poor of enforcing existing laws and building codes. They must also look to policies that will increase, not reduce, the amount of decent housing available to them.

A walk around the supposedly middle-income neighbourhoods such Kileleshwa reveals the toll the distorted property market is taking. Numerous apartment buildings stand empty, their owners apparently unperturbed by the lack of tenants, even as property prices continue to climb.

As the dirty money pushes the middle classes towards the back, it is inevitable that they will take up whatever little decent space exists for the poor, squeezing them into ever more dangerous tenements. The truth is even government provided low income housing will do little to fix the problem if we do not take measures to enforce anti-money laundering laws and to pop the property bubble. If we do not, we should expect more Huruma-type tragedies.